South Korea’s core and headline CPI inflation is expected to have decelerated in May. This will support market’s projections of the Bank of Korea lowering interest rate in a few months time. Prices of fresh food are likely to have stayed stable on seasonal factors. Energy prices are expected to have remained the same as the recovery in oil prices appear to have been countered by the drop in gas prices, said Societe Generale in a research note.
Amongst core sectors, there is a likelihood of a rise in apparel prices on seasonal pattern, unchanged public service tariffs, and a stable increase in personal services tariffs and housing rent. Even if both core and headline inflation on a monthly basis appear to remain stable at 0.2%, year-on-year inflation is expected to decline because of base effects.
“We think both headline and core inflation will rise to around 2% within six to nine months: headline inflation is set to rebound as oil prices rise, and core inflation to return to the ‘normal’ level soon”, noted Societe Generale.
Also, inflation is unlikely to drive the central bank’s rate decisions. The BoK’s policy outlook will be mainly determined by the Q2 GDP data, added Societe Generale.
